CARL WATTS & ASSOCIATES

January 06, 2014

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Tax Breaks Which Expire
in 2014
Happy New Year 2014! The year is starting out with plenty of exciting news.

There has already been a lot of talking (and writing) about what 2014 brings new to your taxes. Of course, most recent changes will affect your 2014 tax returns, but in our experience, it is never too early to adjust your tax and financial planning.

The 2013 tax deal brought extensions to various tax credits that you can still take advantage of with your 2013 tax returns. It is now time to take a look at the tax breaks that expire in 2014.

As you may have already heard, there are some 55 popular tax breaks, both for individual taxpayers and businesses, that have not been renewed for 2014 by the US Congress.

Here are some of the credits expiring as of 2014 that are of interest mostly for individual taxpayers:



Mortgage Insurance Premiums Deduction


Homebuyers who purchase homes with less than 20% down are typically required by their lenders to obtain private mortgage insurance. The insurer pays the monthly payments to the lender in the event the buyer defaults. These payments are made along with your loan payments. Starting in 2007, PMI (Private Mortgage Insurance) premiums have been deductible as a personal itemized deduction — the same as interest on a home loan. Of course, you must itemize your deductions to take the PMI deduction.

This deduction was extended through 2013 for filers earning less than $110,000, but it expires as of January 2014.


Mortgage Debt Forgiveness

The Mortgage Debt Relief Act of 2007 allowed up to $2 million of canceled mortgage debt on a principal residence to be excluded from taxable income. The relief applied when the value of the residence went down or the borrower had a specific financial situation. If the act is not extended, any forgiven debt in 2014 will be taxable income.

If you got a mortgage modification from your bank or did a short sale of your home after 2013 year-end, your tax bill could be thousands of dollars higher than if the modification were completed before 2014.


Energy Efficient Home Improvements

Homeowners who remodeled their homes to make them more energy efficient were able to receive up to $500 in a lifetime tax credit. However, this credit also expires as of January 2014.

Another set of expiring tax breaks involve students and teachers:


Qualified Tuition Deduction

Up until the end of 2013, an individual taxpayer had the chance to claim an above-the-line deduction of up to $4,000 for tuition and fees. This applied only to qualified higher education expenses. This deduction has not yet been extended for 2014.



Educator Expense Deduction

Until the beginning of 2014, elementary and secondary school teachers could qualify for deductions of up to $250 per year for out-of-pocket spending on classroom supplies, even if they didn’t itemize. This tax break still awaits an extension.

Commuting Expenses Deduction

Commuters who take mass transit like trains or buses to work were able to receive $245 a month (or $2,940 per year) in tax-free money toward those expenses in 2013. This perk is scheduled to expire January 1, at which point commuters will only be able to write off just $130 per month ( $1,560 a year.)


Qualified Charitable Distributions Form an IRA

Retirees older than 70 ½ have traditionally been able to make non-taxable charitable donations of up to $100,000 directly from their IRA disbursements. But once this tax break expired at the end of 2013, they will need to take the disbursement first, meaning it will be considered part of their taxable income.


Increased Expensing & Bonus Depreciation Allowances

In 2013, the Section 179 deduction was set at $500,000 while the qualifying property limit was $2 million. In 2014, these limits are slated to drop dramatically: a Section 179 deduction of $25,000, a qualifying property limit of $200,000.
In 2013 you could expense off-the-shelf software under Section 179; not so in 2014. In 2014, a Section 179 election will generally be irrevocable with IRS consent. While you could claim the Section 179 deduction on up to $250,000 of qualified real property last year, 2014 may offer you no such chance.


Electric Vehicle Credit

If you bought (or even leased) an electric car last year, you may have been eligible for a tax credit of up to $7,500 (variable based on the size of the battery pack used by the vehicle). This tax perk is set to sunset in 2014. If you bought a qualifying 2-wheel or 3-wheel plug-in electric vehicle this year, you are eligible for a federal tax credit of up to $2,500.

Other tax provisions set to expire this year include tax credits for research and experimentation, reduced state and local sales taxes, tax breaks for the renewable energy industry, the Emergency Unemployment Compensation program, a 50% tax credit for expenses related to railroad track maintenance, enhanced deductions for companies that donate food to the needy, books to public schools or computers to public libraries, a tax break that allows TV and movie productions to more quickly write off expenses, and many more tax breaks affecting businesses all over the country.

Most important of all, don’t let such news spoil the beginning of an exciting and promising new year. After all, at least some of these tax breaks could get reenacted or extended, so this is one more reason to stay tuned to our Newsletter each week.
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